DRI to underpin carbon-neutral steel; growth needed in pellet supply

Direct reduction iron (DRI) and metallic iron products are expected to underpin low emissions steel production, while iron ore pellet supplies needed by the end of the decade may see a deficit without more investments in mines and processing plants and technological breakthroughs for iron and ferrous scrap.

Iron ore-based metallics including DRI and pig iron are expected to be vital components in the pathway to carbon-neutral steelmaking, according to the International Iron & Metallics Association.

DRI production growth will require iron ore resource development and new technology to spur availability, IIMA Secretary General John Atherton said in an interview.

"Direct reduction plays a vital role in several pathways to carbon-neutral steelmaking under active consideration," Atherton said.

The IIMA had presented an update to members in December. Based on new DRI steel plants already planned in Europe and other regions, IIMA currently estimates 29 million mt of new DRI and hot briquetted iron (HBI) production dependent on the merchant iron ore pellet market by 2030, compared with 2020.

HBI facilitates seaborne transportation and handling as DRI requires specialized shipping and handling to conform to the International Maritime Organization code for the commodity. Typically, DRI is produced hot for use in adjoining electric arc furnaces (EAF), or as cold DRI for localized transportation to EAFs.

Merchant pig iron supply in the seaborne market, mainly from Ukraine, Russia and Brazil, aids feedstock requirements for EAFs, helping make up for impurities in ferrous scrap. Further interest in upstream carbon emissions could lead to a preference for natural gas or hydrogen-based DRI.

"Longer-term there might be a tipping point for pig iron, they will have to address the carbon footprint, if not the industry will look more into HBI," Atherton said.

Growing use of metallics and ferrous scrap to lower steel carbon emissions is driven by carbon emissions regulations and traded markets, such as in the EU, and broader user interest in so-called green steel, especially from consumer products such as automotive and transportation, white goods, and increasingly for steel in housing and infrastructure.

Currently, the producers of low impurity iron ore pellets suitable for DRI plants such as Vale, Bahrain Steel, LKAB, ArcelorMittal Mining and Iron Ore Company of Canada see tight supplies and sustained demand for BF pellets limiting some flexibility. Russian and Ukrainian pellet producers have upgraded beneficiation processes and pellet plant capacity to meet demand, especially in the Middle East and North Africa, with further DRI requirements expected in Europe.

The expected longer term shortage of DR-grade iron ore and metallic raw materials may push more low-quality iron materials for use through technological innovations, the IIMA said.

Projects seeking to commercialize new iron ore reduction and DRI processes may help, along with processes to remove impurities in scrap metal to recycle more efficiently.

"In the long run, iron ore of the type and quality needed is not going to become cheaper to produce, given the need for higher levels of beneficiation in many cases," the IIMA added.

DR pellet demand

Merchant DR-grade iron ore pellet demand may increase to 53 million mt in 2025 from about 38 million mt in 2020, and rise to 81 million mt in 2030, according to IIMA estimates.

Around 28.5 million mt of estimated market-based DR pellet demand in 2030 is expected to come from new DR plants, mainly in Europe and the MENA region, at which time supply could struggle to meet demand, according to IIMA.

Miners such as Vale, LKAB and IOC are looking into producing low-emissions iron products, diversifying from pellets, while Cleveland-Cliffs and ArcelorMittal are already fully integrated, producing DRI/HBI, and Metinvest, and Russian steel and mining groups are investigating DRI projects.

The International Energy Agency's DRI production forecast -- based on the Paris-based agency's sustainable development scenario of 411 million mt in 2050 --- implies over half of the volume coming from 100% hydrogen-based DRI, and 37 million mt of DRI from processes using carbon capture and storage technology.

This is over three times higher than the 116 million mt in total DRI output globally in 2019.

The IIMA sees iron ore suppliers and DRI-based steel producers as interdependent components of the steel value chain which must cooperate closely to ensure iron ore of the right type and quality is available on a timely basis.

"DRI and HBI are essential EAF steelmaking inputs, diluting residual metallic impurities in scrap, enabling production of high quality steel products and the inclusion of lower grades of scrap in the charge," the IIMA said.

China imported 3.46 million mt of DRI-based products in 2020, up from 1.36 million mt, according to data from the IIMA. China absorbed surplus volumes from other regions when steel output outside China fell during the COVID-19 pandemic. China is also active in pig iron and ferrous scrap trade, opening up imports of HRS 101-grade scrap in early 2021.

US steel production trends have seen the share of EAF-based producers grow further in the past few years, facilitated by merchant pig iron supply. More US EAF plants have been announced by Nucor and US Steel. Many EAF plants require merchant pig iron, or HBI/DRI, to supplement scrap for feedstock quality, and mills may alter the mix depending on pricing and markets.

"Currently, the key demand growth driver for merchant ore-based metallics are the many projects for new and expanded EAF operations in North America, for example Steel Dynamics' Sinton plant in Texas," said Chris Barrington, IIMA senior advisor.

Steel produced using coal-based blast furnaces may see limited growth outside Asia, as investment in DRI and EAF plants may replace existing integrated steel works.

In the meantime, blast furnace and basic oxygen furnace-based steel may lower carbon emissions by changing processes and feedstock mixes, and by using HBI to supplement scrap, or directly in the blast furnace. To ensure operational flexibility with high-grade scrap, mills have tested HBI in the basic oxygen furnace (BOF).

"The roadmap to carbon-neutral steelmaking is likely to be protracted as technological, energy, financial and regulatory hurdles are addressed," Barrington said.

"In the short to medium term, while planning the longer term roadmap is key, it should not be forgotten that the integrated BF/BOF steelmaking route has scope for optimization and reduction of carbon dioxide emissions."

Cliffs and Voestalpine are charging HBI directly in the blast furnace at several sites, and operating commercially on this basis.

HBI is an effective way to maximize pig iron rates and natural gas-based HBI's iron content, and cut emissions and some PCI and coke rates compared with using iron oxide products alone, according to published research from Voestalpine, Kobe Steel and Midrex.